Inflation still a threat, BSP chief says
The head of the country’s central bank—the agency responsible for keeping local consumer prices in check—defended authorities’ decision to keep interest rates at current levels citing threat that the rising cost of petroleum globally might push Philippine inflation higher this year.
In a statement, Bangko Sentral ng Pilipinas Governor Benjamin Diokno said the prolonged El Niño dry spell being predicted by weather forecasters might further aggravate the picture.
“On balance, therefore, our prevailing monetary policy stance remains appropriate, given the confluence of easing inflation and firm growth dynamics,” he told reporters in a briefing, assuring that the country remained on track toward achieving the government’s 2-4 percent inflation target this year.
The BSP chief’s statement comes amid growing calls for the BSP to either lower its overnight borrowing rate, on which banks base their loan prices, or further reduce the banking system’s reserve requirement ratio. These calls were prompted by the downtrend in inflation in recent months coming off the nine year-high recorded in late 2018.
ING Bank Manila senior economist Nicholas Mapa said the BSP had often been criticized for falling behind the curve, with the 2018 episode being the most recent.
“With inflation careening lower and risks all emanating from the supply side, BSP must also guard against keeping their foot on the brakes for too long before they fall behind the curve again with growth, according to [Finance Secretary Carlos] Dominguez, seen to take a hit,” he said in an e-mailed note to the press.
In recent weeks, banks have complained about the tight liquidity in the domestic financial markets, prompting many of them to raise short-term cash from the debt markets at higher rates in order to fund their loan operations.
Mapa said the BSP had long pledged to be data-driven in its decision making, but advocated for a more timely response this time around.
“Given that monetary policy operates with a lag, BSP’s actions are data-driven but also forward looking,” he said.
